Battle of the In-Betweens: Redbox and Netflix

“Little-Known Redbox Proves the Power of In-Between Technology” in the current issue of Fast Company describes the rapid rise of video rental kiosk vendor Redbox. As indicated by the title, the article underscores how Redbox has succeeded using “in-between” technology, focusing on what works now rather than chasing the latest vision of the high-tech future:

Ask any entertainment bigwig where the movie-rental business is going and you’ll hear one thing: digital streaming. Amazon, Apple, Netflix, the cable companies, and many startups are gearing up to send every movie to your home on demand. But Hollywood’s byzantine licensing structure precludes that from happening anytime soon. Redbox has positioned itself as the perfect in-between technology — the next best thing to on demand.

To drive home the point, the author describes the Redbox kiosk as follows:

This sorry contraption doesn’t run peer-to-peer software; it doesn’t do Blu-ray; it won’t stream anything straight to your house. It’s a vending machine in a supermarket — as old school as you can get without actually involving vacuum tubes.

One of Redbox’s leading competitors is Netflix. The article cites a Hollywood Reporter article in which Netflix CEO Reed Hastings identifies Redbox as his company’s “fastest-growing competitor” stating, “It’s really scary.”

For all the emphasis on Redbox’s success as a transitional technology, the Fast Company piece fails to note that Netflix’s current model also rests largely on “in-between” technology. Like Redbox, Netflix distributes physical media. Shipping DVDs through the U.S. Postal Service is hardly the epitome of high-tech.

Like Redbox, Netflix built a business based on the practical realities of the current technology environment. Both companies realize that while distributing physical media may seem antiquated to forward-looking futurists, it is an efficient method of distributing digital content.

It is surprising how often the drive toward the future blinds us to the value of these low-tech “in-between” solutions. As Andrew Tanenbaum observed back in 1996 when comparing computer networks to old-fashioned physical transportation of media, “Never underestimate the bandwidth of a station wagon full of tapes hurtling down the highway.”

But the future will ultimately arrive, and Netflix has cleverly positioning itself for that eventuality. While generating a steady revenue stream by embracing the old — that is, currently practical — technology, Netflix’s “Watch Instantly” feature builds a bridge to the on-demand streaming future.

There are impediments that still need to be overcome, of course. We need more bandwidth and better video compression. We need an easy way to send streaming content to any screen in our homes. But the seeds of these capabilities are already being planted. For example, Netflix’s streaming capabilities currently come bundled with selected Blu-ray players, game consoles, and large screen televisions.

On-demand will eventually overtake media-based distribution. When that happens, Netflix will be able to gracefully transition its business model — and its paying customer base — to the streaming future. The long-term outlook for Redbox is less clear.

Rosie:
Yes, the on-demand, instant gratification of “Watch Instantly” is quite compelling, both as a personal viewing experience and as an eventual business model for Netflix. This will only get better with time.

I’ve never seen a Redbox kiosk before but I’ll keep my eyes out for them now. I doubt I would actually rent a movie there because I’m so used to my huge video store. I suspect many video renters will be slow to transition to Redbox.
I was curious about Redbox so I did some research. I have some backlinks below to some interesting articles. Forbes.com says Redbox rents new releases for only $1.00 and had sales of “only” $400M in 2008, up 180% over 2007: Forbes.com
This South Bend Tribune article has a picture of a kiosk and says that the Redbox COO predicts sales of $650M to $700M in 2009: South Bend Tribune
I may have to give Redbox a shot now that I know about it. I’m also looking forward to trying out “On Demand” video.

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